IDEAS home Printed from https://ideas.repec.org/a/mth/ajfa88/v9y2017i2p399413.html

The Impact of Working Capital Management on Firm Value: Evidence from a Frontier Market

Author

Listed:
  • A.N. Hingurala Arachchi
  • Wasantha Perera
  • Ratnam Vijayakumaran

Abstract

Corporate finance literature and finance practitioners have the notion that the efficient working capital management (WCM) affects firm value. This study investigates the value effect of working capital management, using a sample of 44 listed companies on the Colombo Stock Exchange (CSE) over the period 2011-2015. The CSE is currently recognized as a high growth frontier market (FM) in the world. The efficiency of WCM is measured using the Cash Conversion Cycle (CCC) and its components while firm value is measured by the Tobin Q ratio. The firm size, leverage and sales growth are used as the control variables. Using panel data regression methodology (the pooled OLS and fixed effects regressions), the study finds that CCC is inversely related to Tobin Q, suggesting that managers can create value for their shareholders by efficiently managing investment in working capital of their firms.

Suggested Citation

  • A.N. Hingurala Arachchi & Wasantha Perera & Ratnam Vijayakumaran, 2017. "The Impact of Working Capital Management on Firm Value: Evidence from a Frontier Market," Asian Journal of Finance & Accounting, Macrothink Institute, vol. 9(2), pages 399413-3994, December.
    • Handle: RePEc:mth:ajfa88:v:9:y:2017:i:2:p:399413
    as

    Download full text from publisher

    File URL: https://www.macrothink.org/journal/index.php/ajfa/article/download/12449/10242
    Download Restriction: no
    File URL: https://www.macrothink.org/journal/index.php/ajfa/article/view/12449
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shaista Wasiuzzaman, 2015. "Working capital and firm value in an emerging market," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 11(1), pages 60-79, February.
    2. Harsh Pratap Singh & Satish Kumar, 2014. "Working capital management: a literature review and research agenda," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 6(2), pages 173-197, July.
    3. Robert Kieschnick & Mark Laplante & Rabih Moussawi, 2013. "Working Capital Management and Shareholders' Wealth," Review of Finance, European Finance Association, vol. 17(5), pages 1827-1852.
    4. Bana Abuzayed, 2012. "Working capital management and firms’ performance in emerging markets: the case of Jordan," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 8(2), pages 155-179, March.
    5. Shaista Wasiuzzaman, 2015. "Working capital and firm value in an emerging market," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 11(1), pages 60-79, February.
    6. Jensen, Michael C. & Meckling, William H., 2008. "Theory of the firm: managerial behavior, agency costs and ownership structure," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 48(2), April.
    7. Shaista Wasiuzzaman, 2015. "Working capital and firm value in an emerging market," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 11(1), pages 60-79, February.
    8. Bana Abuzayed, 2012. "Working capital management and firms’ performance in emerging markets: the case of Jordan," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 8(2), pages 155-179, March.
    9. Bana Abuzayed, 2012. "Working capital management and firms’ performance in emerging markets: the case of Jordan," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 8(2), pages 155-179, March.
    10. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3‐4), pages 573-588, April.
    11. Marc Deloof, 2003. "Does Working Capital Management Affect Profitability of Belgian Firms?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(3-4), pages 573-588.
    12. repec:eme:mfppss:eb027318 is not listed on IDEAS
    13. Harsh Pratap Singh & Satish Kumar, 2014. "Working capital management: a literature review and research agenda," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 6(2), pages 173-197, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zheng, Xiaotian & Zhou, Youcheng & Iqbal, Sajid, 2022. "Working capital management of SMEs in COVID-19: role of managerial personality traits and overconfidence behavior," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 439-451.
    2. Dewangan, Shobhana & Kannadhasan, M., 2025. "Analyzing the impact of sustainable performance on working capital management: Evidence from emerging markets," Pacific-Basin Finance Journal, Elsevier, vol. 92(C).
    3. Jantadej, Kulaya & Kotcharin, Suntichai, 2025. "Navigating liquidity in turbulent waters: The impact of global supply chain pressures on maritime working capital management strategies," Research in Transportation Economics, Elsevier, vol. 112(C).
    4. Prince Bhatia & Narayanasamy Sivasankaran & Aditya Banerjee & Subir Chattopadhyay, 2025. "Does Firms’ Working Capital Efficiency Matter in Dividend Payout: Empirical Evidence from India," Vision, , vol. 29(2), pages 218-231, April.
    5. Ranjit Tiwari, 2026. "Working Capital Optimization in the Energy Sector: The Intellectual Capital Perspective," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 47(6), pages 1404-1424, September.
    6. Muhammad Azeem Naz & Rizwan Ali & Ramiz Ur Rehman & Collins G. Ntim, 2022. "Corporate governance, working capital management, and firm performance: Some new insights from agency theory," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1448-1461, July.
    7. Jacek Jaworski & Leszek Czerwonka, 2024. "Profitability and working capital management: a meta-study in macroeconomic and institutional conditions," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 51(1), pages 123-145, March.
    8. Peter BAGDACS, 2025. "Integrated Controlling Approaches And Their Impact On Working Capital Efficiency And Corporate Profitability," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 34(1), pages 309-321, July.
    9. Luca Sensini & Maria Vazquez, 2023. "Effects of Working Capital Management on SME Profitability: Evidence from an Emerging Economy," International Journal of Business and Management, Canadian Center of Science and Education, vol. 16(4), pages 1-85, February.
    10. SUNTRARUK Phassawan, 2023. "The Mediating Effect Of Profitability On The Relationship Between Working Capital Management And Sustainable Growth," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 18(1), pages 314-327, April.
    11. Qida Hu & Md. Borhan Uddin Bhuiyan & Muhammad Nurul Houqe, 2024. "CFO Demographics and Working Capital Management in China," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 23(1), pages 56-82, March.
    12. Sumathi Kumaraswamy, 2016. "Impact of Working Capital on Financial Performance of Gulf Cooperation Council Firms," International Journal of Economics and Financial Issues, International Journal of Economics and Financial Issues, vol. 6(3), pages 1136-1142.
    13. Tarek Ibrahim Eldomiaty & Mohamed Hashem Rashwan & Mohamed Bahaa El Din & Waleed Tayel, 2016. "Firm, industry and economic determinants of working capital at risk," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-29, December.
    14. Hari P. Adhikari & Marcin W. Krolikowski & James Malm & Nilesh B. Sah, 2021. "Working capital (mis)management – impact of executive age," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 727-761, March.
    15. Josiah Aduda & Morgan Ongoro, 2020. "Working Capital and Earnings Management among Manufacturing Firms: A Review of Literature," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 9(3), pages 1-5.
    16. Kusuma Hadri & Bachtiar Ahmad Dhiyaullatief, 2018. "Working Capital Management and Corporate Performance: Evidence from Indonesia," Journal of Management and Business Administration. Central Europe, Paradigm, vol. 26(2), pages 76-88, June.
    17. Jacek Jaworski & Leszek Czerwonka, 2022. "Which Determinants Matter for Working Capital Management in Energy Industry? The Case of European Union Economy," Energies, MDPI, vol. 15(9), pages 1-18, April.
    18. Hong, Liu & Jain, Bharat A. & Shao, Yingying, 2024. "Family firm governance and working capital management policy," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    19. Tarkom, Augustine & Nochebuena-Evans, Leiza & Wang, Haibo, 2025. "The effectiveness of female chief financial officers in managing working capital: Evidence from US-listed firms," Journal of Behavioral and Experimental Finance, Elsevier, vol. 47(C).
    20. Nitya Nand Tripathi & Naseem Ahamed, 2017. "Time Taken to Reach the Performance Summit: Nature of Relation Between Working Capital Management and Firm Performance in the Indian Context," International Journal of Economics and Financial Issues, International Journal of Economics and Financial Issues, vol. 7(4), pages 530-536.

    More about this item

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mth:ajfa88:v:9:y:2017:i:2:p:399413. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Technical Support Office (email available below). General contact details of provider: http://www.macrothink.org/journal/index.php/ajfa .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.